College Subsidies Fuel Salaries

Alex Tabarrok:

Who pays a tax is determined not by the laws of Congress but by the law of supply and demand," as Tyler and I say in Modern Principles. In particular, whether demanders or suppliers pay a tax is determined by the elasticities of demand and supply. The more elastic side of the market can better escape a tax, leaving more of it to be paid by the inelastic side. The same thing is true for a subsidy but in reverse, the inelastic side of the market gets the benefit of the subsidy. Virginia Postrel applies the idea to education and education subsidies.

Posted by Jim Zellmer at December 13, 2011 1:31 AM
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